Mentor’s Comment: UPSC mains have always focused on Sustainable Development (2016, 2017, 2018 and 2022), and Budget Initiatives (2017 and 2021).

Currently, India holds only about 0.05% of the global market share in shipbuilding, significantly lower than competitors like China (47%), South Korea (30%), and Japan (17%). This disparity highlights that without addressing inefficiencies in container movement and logistics integration, infrastructure growth alone will not lead to meaningful progress.

The editorial discusses the recent positive developments in India’s shipping industry, particularly following the government’s announcements in the Union Budget 2025-26. This content can be used to present challenges in the Maritime Sector.

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Why in the News?

The Union Budget 2025-26 appears to have met most of the shipping industry’s demands; but it has missed an opportunity to address tax disparities.

What specific government initiatives are being introduced to support the shipping industry?

• Maritime Development Fund (MDF): This initiative is the establishment of a MDF with an initial corpus of ₹25,000 crore which aims to provide long-term financing for the shipbuilding and maritime sectors, facilitating investment and growth within the industry.
• Shipbuilding Financial Assistance Policy: The government has announced a revamp of the Shipbuilding Financial Assistance Policy (SBFAP) which aims to address cost disadvantages faced by domestic shipyards by providing direct financial subsidies, thereby encouraging local shipbuilding and enhancing competitiveness.
• Customs Duty Exemptions and Incentives: This Budget extends customs duty exemptions on inputs and components used for manufacturing ships for more than 10 years.
  • Additionally, credit notes will be issued for shipbreaking activities, promoting a circular economy within the industry in order to make shipbuilding and recycling more competitive.
• Extension of Tonnage Tax Scheme: The benefits of the existing tonnage tax scheme, which previously applied only to sea-going ships, will now be extended to inland vessels registered under the Indian Vessels Act, 2021.
  • This change aims to promote inland water transport and enhance the overall efficiency of the maritime sector.
• Establishment of Shipbuilding Clusters: The Indian shipping industry has been advocating for the extension of the Shipbuilding Financial Assistance Policy (SBFAP) for another 10 years under the Amritkaal Maritime Vision 2047.
  • The government plans to facilitate the creation of shipbuilding clusters to increase capacity and capabilities in ship manufacturing.

How can these initiatives impact India’s position in the global shipping market?

• Enhanced Global Competitiveness: By establishing the Maritime Development Fund and revamping financial assistance policies, India aims to boost its shipbuilding capabilities and reduce costs associated with ship construction and repair.
  • This could elevate India’s ranking in global shipbuilding from 22nd to potentially within the top 10 by 2030 and top 5 by 2047, thereby increasing its share of global ship tonnage from less than 1% to around 5%.
• Improved Infrastructure and Efficiency: The government’s focus on port modernization through initiatives like the Sagarmala Programme and Maritime India Vision 2030 is set to enhance port infrastructure, logistics efficiency, and multimodal connectivity.
  • These improvements will reduce turnaround times for vessels and lower logistics costs, making Indian ports more attractive for international shipping lines and increasing cargo handling capacity significantly.
• Attracting Foreign Investment: With a favorable investment climate that allows 100% Foreign Direct Investment (FDI) in port development, India is positioned to attract significant foreign capital into its shipping sector.
  • This influx of investment can lead to technological advancements, better operational practices, and increased capacity, further solidifying India’s role as a key player in global maritime trade.

What challenges does the Indian shipping industry face despite these positive developments?

• High Costs and Financial Constraints: Indian shipyards face significant cost disadvantages compared to global competitors, particularly in terms of higher material and labor costs, as well as expensive financing options.
  • This results in a 25-30% cost disadvantage for Indian shipyards compared to those in countries like China and South Korea.
  • Additionally, the imposition of a 5% Goods and Services Tax (GST) on ship imports, which is not refunded for international operations, further strains financial resources for shipping companies.

• Infrastructure Bottlenecks: Major Indian ports are grappling with issues such as congestion, inefficiency, and inadequate infrastructure to support increasing traffic volumes.
  • The growth in cargo traffic has outpaced the development of port facilities, leading to delays and higher operational costs.
  • For example, backlogs for rail freight have increased significantly, impacting the timely movement of goods.
  • Furthermore, labor strikes and outdated technology contribute to lower productivity at ports, making them less attractive to global shipping lines.
• Dependence on Foreign Suppliers: Indian shipyards heavily rely on foreign suppliers for critical components and technology, which increases costs and complicates supply chains.
  • This dependency results in longer lead times for procurement and vulnerability to supply chain disruptions.
  • The lack of a robust domestic supply chain for high-tech maritime components further exacerbates these challenges, limiting the competitiveness of Indian shipbuilding firms.

Way Forward:

To realize its aspirations under the Amritkaal Maritime Vision 2047, India must prioritize investments in infrastructure, streamline regulatory processes, and foster a skilled workforce.

• The path forward requires a concerted effort from all stakeholders to transform these challenges into opportunities for sustainable development in the maritime sector.
• Establish a National Port Grid Authority to coordinate development across major and minor ports, promoting specialization and eliminating inter-port competition.
• Implementing a hub-and-spoke model with mega ports acting as transshipment hubs can optimize cargo movement and efficiency.
• Deploy Smart Port Infrastructure Management Systems (SPIMS) and introduce blockchain-based Port Community Systems to facilitate paperless and IoT based trade.

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